Cover Story

Premium Stakes : In the changing and competitive world of pay TV, channels rely on new tactics for viewers

Once upon a time, in the not-so-distant past, the premium movie channels--Home Box Office, Showtime, Cinemax and The Movie Channel--were growing steadily. They were invincible.

By the end of 1989, Home Box Office Inc.--parent of HBO and Cinemax--reached 23.7 million subscribers, a gain of 3% over 1988. Through the end of 1989, Showtime Networks, Inc.--Showtime and The Movie Channel--gained 7.8% over the previous year, for a total of 10.4 million subscribers.

But then the bubble burst. By Sept. 30, 1990, HBO had seen a subscription growth of just 1.8% over 1989; Showtime's growth slipped to 1.4%.

And the marketplace doesn't show any signs of improving. "I think things are still fairly flat for the industry," said Jim Miller, executive vice president of programing, Showtime.

The stagnation of premium movie channels can be blamed on many factors, Miller said. Home video, he maintained, is the major one: "When you ship several hundred thousands of video cassettes and that evolves into several million turns of the cassettes, movies are no longer as valuable and as fresh when they come to pay (channels)."

The current recession is another nail in the pay channels' coffin.

But the pay channels' Achilles' heel has proven to be the rapid growth of basic cable. Such basic movie channels as TNT and AMC didn't even exist five years ago. Today, 56 million households now get USA Network, the most-watched cable channel. In most cable systems, pay networks compete with 30, 40 or even more channels.

"It's much tougher attracting an audience in a 35- to 50-channel environment than it was in a more limited environment five or seven years ago," Miller said.

One added factor is pay-per-view, now available in more than 16 million homes and growing. Neither Showtime nor HBO executives see pay-per-view as a detriment to the premium movie channels. But they agree it will be a force when it reaches 35 million homes, which could be as soon as 1995. See separate story.

Slow growth is bad enough. But the movie channels also must face the problem of lost viewers. In 1990, HBO saw an average of 4.5% of its subscribers disconnect per month. The same problem haunts HBO's competitors, Showtime and The Movie Channel. So while the pay movie channels continue trying to lure new viewers, they must also keep current subscribers happy.

"There are all kinds of ways the cable industry and HBO have to attract people to sample their product," said Lee deBoer, senior vice president of Cinemax and program planning of HBO. "(But) I think the key to success is to keep people on board."

"We are essentially a marketing company in many ways now and to use the buzz word, retention--keeping people around--has become much more important over the last year than it was five years ago."

The networks are employing stunts and new programming in the race to set themselves apart.

HBO has spent some $10 million this year in its "Beyond the Scenes Challenge." Robert Klein poses trivia questions after one of the month's movies, and viewers respond by postcard or a 900 number. The "Glory" promotion received 125,000 responses; "Driving Miss Daisy" 250,000. For each movie there is a grand prize (for "Glory" it was a letter signed by Abraham Lincoln valued at $25,000), plus 1,000 runners-up awards.

HBO and Showtime are beefing up their original programming, especially adult-oriented programming that couldn't air on the networks or even basic cable.

Showtime is concentrating its efforts on original movies and comedy specials. "In the early '80s," Miller said, "we were all over the place in terms of programming." A recent jewel in Showtime's movie crown was its acclaimed movie, "Paris Trout," starring Dennis Hopper and Barbara Hershey.

"Our idea is to do small movies that can be released theatrically overseas," Miller said. "These movies you might call, in general, commercial--something that I couldn't see on a movie-of-the-week on basic cable--something you can only show on premium TV."

Boxing also has boosted Showtime's visibility. Major boxing matches air pay-per-view, but they quickly are repeated on HBO or Showtime. This past winter Showtime lured boxing promoter Don King and his client, former heavyweight champ Mike Tyson, from HBO. (In turn, HBO grabbed heavyweight champion Evander Holyfield from Showtime.)

"We try to have high-profile events," Miller said. "We had Sugar Ray Leonard in his last fight and we had the two Tyson-Ruddock fights. Boxing is something that has proven to be popular with subscribers and we have also been able to increase our subscriber count."

HBO airs an average of one original movie per month, attracting such actors as Ray Liotta, Matt Dillon, Melanie Griffith, Jack Lemmon, Richard Dreyfuss, Dennis Hopper and Anthony Hopkins.